Wireless Spectrum Auctions

Previous applicants for wireless licenses are suing FCC for $148 million, contending that’s current value of licenses on which they charged Commission reneged on promise to award spectrum via lottery. Class action litigation is led by lottery applicants that include Gene Folden, Boca Raton; Judith Longshore, Canton, N.Y., Coastal Communications Assoc., Charleston, S.C. Lawsuit, filed in U.S. Court of Federal Claims, argued that agency had breached “implied contracts” to award 7 cellular licenses by lottery, saying govt. owed them and other lottery applicants pro rata share of current market value of spectrum. Applicants said they paid U.S. $855,200 to participate in lotteries that Commission held in 1989. FCC later found lottery winners to be unqualified and scheduled replacement lotteries for 6 of 7 licenses in July 1996, cancelling re-lotteries few months later. In 1997, Congress cancelled FCC’s authority to use lotteries, replacing them with auctions. After that, FCC awarded spectrum to 3 of originally disqualified lottery winners at direction of Congress. Plaintiffs said FCC “apparently intends” to auction 4 remaining cellular licenses that had been at issue. FCC Wireless Bureau released order March 2 that denied reconsideration of lottery participants’ application for 7 licenses. Licenses at issue are in Ark., Fla., Minn., N.D., Pa., P.R. and Tex. and range in estimated value from $4 million to $53.5 million. Suit said FCC, by not awarding 7 licenses by lottery, deprived applicants “of their contract rights to have chances of winning licenses.” Robert Kerrigan, attorney for lottery applicants, said govt. took money from applicants, kept $200 per applications that had been paid and then used another system to award licenses. “Although the government can do that from a regulatory perspective, the folks who paid to enter the lottery are entitled to the benefit of their bargain, which in this case is their pro rata share of the fair market value of those licenses,” he said. Kerrigan has represented state of Fla. against tobacco industry. He said there were 926 members of class of lottery applicants for 7 licenses who would share value of $148 million on pro rata basis, depending on which lotteries they entered, “minus expenses and attorney fees.”

AT&T Wireless told SEC in filing Wed. that it hadn’t yet reached agreement with Alaska Native Wireless (ANW) on whether designated entity would participate in its wireless network. AT&T Wireless has noncontrolling equity stake of 39.9% in ANW, which won licenses in FCC’s C-block re-auction earlier this year. Results of that auction now are in disarray with June decision by U.S. Appeals Court, D.C., that would return licenses cancelled by FCC for nonpayment back to NextWave. AT&T Wireless filing said it had made $2.6 billion investment in ANW, which had won licenses for $2.9 billion in re-auction. ANW doesn’t have to use spectrum it acquires in way that’s consistent with “strategic objectives” of AT&T Wireless, latter told SEC. However, ANW does have to use wireless technology that’s compatible with AT&T’s. “If Alaska Native Wireless does not enter into agreements with us regarding the use and development of this spectrum similar to those we have entered into with our affiliates for our existing networks, it could have a material adverse impact on the timing and cost of implementing our third-generation strategy,” AT&T Wireless said. Carrier said that if NextWave decision were appealed successfully or settled or if ANW couldn’t obtain licenses for which it bid, “it could have a significant adverse impact on our plans to provide or enhance services in key new and existing markets.” In certain circumstances, if grant of licenses is challenged, “we may be obligated to purchase the interests of other investors,” AT&T Wireless said.

U.S. spectrum policy should move away from current “piecemeal” approach, particularly on upcoming 3G decisions, CTIA Pres. Tom Wheeler said Wed. At press lunch, he said current 3G discussions between industry and govt. presented opportunity to craft national spectrum policy plan that would look at timelines such as 5 to 10 years and be updated periodically. “What we have to break ourselves of is this piecemeal spectrum policy approach,” he said. With larger “pot” of spectrum on which to base decisions, policymakers would have more flexibility, he said. Asked about recent FCC decision to delay Ch. 60-69 auction and impact on 3G timelines, Wheeler said 700 MHz band was “potentially part of the solution because it provides alternatives for migration and other such developments.” He said “that’s beachfront property” with potential interest for Dept. of Defense. Overall uncertainty involving NextWave licenses takes 30 MHz of wireless spectrum off table now for any carrier to use, he said. Lauding attention that govt. players such as Commerce Dept. and FCC have paid to 3G decisions, Wheeler again called for Commission to eliminate spectrum cap to provide nearer term relief. “What is happening is pressure is building up… and there has to be this escape valve,” he said. After recent House and Senate hearings on 3G, discussions have continued with wireless industry and govt. at White House “involving all of the major players” in debate on how advanced wireless spectrum would be carved out, he said. As for carriers’ Enhanced 911 Phase 2 waiver requests, Wheeler stressed extent to which both public safety answering points (PSAPs) and wireless industry had to grapple with readiness. But he cited report that Assn. of Public-Safety Communications Officials estimated 10% of PSAPs involved Phase 1 complaint. Wheeler said that by contrast. all wireless carrier switches were Phase 1 ready. “What I have been trying to say to the PSAP community is we are going to be there, what are you going to do to ensure you will be able to take that latitude and longitude information and use it? I hope they come up with a plan,” Wheeler said. Separately, he touted early attendance and exhibitor figures for CTIA Wireless I.T. and Internet 2001 show in San Diego in Sept. Exhibitor registration figures are up 122% over last year, when 206 firms exhibited. Attendee preregistration also is running ahead of last year, he said. Wheeler said reported increases in IT spending and CTIA show figures point to uptick for wireless data industry. “We're starting to come out of the wilderness insofar as wireless data is concerned,” Wheeler said.

FCC staffers met with terrestrial startup MDS America, which wants to use DBS spectrum for its wireless technology, on results of system testing and possible spectrum auction that company favors, MDS said in filing. MDS told Commission tests were completed last month, and MDS was waiting for report on tests from independent engineering firm. MDS also said if more than one company was interested in spectrum, Commission should hold auction.

In latest twist in protracted legal battle over NextWave’s C- block licenses, FCC plans to ask U.S. Supreme Court to review U.S. Appeals Court, D.C., ruling that returned licenses to bankrupt carrier. In meantime, Commission asked D.C. Circuit to stay results of its June remand that otherwise would take effect Aug. 13 by returning to NextWave licenses on which it had bid $4.7 billion in 1996. D.C. Circuit in June reversed FCC decision that canceled NextWave licenses for missed payment, throwing results of $16.8 billion re-auction of those licenses into chaos. “High court review will protect the integrity of the FCC’s auctions program, which Congress has chosen as the best method of assigning scarce and precious spectrum resources to those that will put them to their most productive use,” FCC Chmn. Powell said. Commission plans to file petition for certiorari at Supreme Court Sept. 22.

Senate Commerce Committee’s communications subcommittee took first run on Senate side Tues. on difficult spectrum allocations decisions that remain unresolved for 3rd generation wireless. Panel members questioned govt. officials closely on how efficiently both military and commercial operators are using existing spectrum allocations. Echoing Pentagon concerns raised at House hearing last week (CD July 25 p1), Linton Wells, acting asst. secy. of defense for command, control, communications and intelligence, continued to outline obstacles to relocation of military users before 2010 for terrestrial systems and 2017 for satellite systems. Without choosing sides between whether incumbent commercial or military users should be moved, Subcommittee Chmn. Inouye (D-Hawaii) stressed need for compromise. “If the only option is to relocate the Defense Department, we must find comparable spectrum, develop a migration time frame that allows the Defense Department to maintain its operations as it vacates the spectrum and ensure that the Department’s costs are reimbursed,” Inouye said. Like other panel members, he emphasized need to reach solution that wouldn’t degrade military readiness.

Characterizing challenge to its licenses as “frivolous,” NextWave asked FCC Mon. to dismiss petition questioning its eligibility to receive PCS licenses returned to it last month by U.S. Appeals Court, D.C. In recent petition (CD July 20 p2), Alaska Native Wireless, Verizon Wireless and VoiceStream cited foreign ownership issues involving NextWave, its designated entity status and its financial qualifications to meet licensee requirements. NextWave told FCC that petitioners incorrectly labeled it as “applicant” trying to get back its C-block licenses. “No known legal standard requires NextWave to reapply for the licenses that were the subject of litigation,” NextWave said. “The FCC granted the licenses to NextWave in 1997 and the court’s unanimous June 22 decision returns them to the company by operation of law.” Carriers pursuing challenge all were successful bidders in FCC’s Jan. re-auction of PCS licenses, most of which had belonged to NextWave before Commission cancelled them for nonpayment.

Five of PCS bidders that stand to lose most from U.S. Appeals Court, D.C., decision on NextWave urged FCC and Attorney Gen. John Ashcroft to reach “immediate settlement” that would keep results of $16.9 billion Jan. re-auction intact. Alaska Native Wireless, Dobson Communications, Salmon PCS, Verizon Wireless and VoiceStream called on Ashcroft, FCC Chmn. Powell and Office of Management & Budget (OMB) Dir. Mitchell Daniels “to achieve an immediate settlement of the NextWave litigation.” Proposal laid out in July 24 letter would need acceptance of both govt. and NextWave. Plan would take part of money due from winning re- auction bidders and pay it directly to NextWave in return for its dismissal of claims to 90 licenses. Rest of money from auction winners would be paid to federal govt. Citing $4.7 billion NextWave originally bid for licenses in 1996, carriers proposed $4-$5 billion as starting point for settlement talks. While plan wouldn’t keep entire $15.8 billion bid on former NextWave licenses intact as income for U.S. Treasury, carriers warned that uncertainty over D.C. Circuit ruling meant that “the delivery of that money to the Treasury is now farther away than ever.”

Members of House Telecom Subcommittee urged Defense Dept. and wireless industry Tues. to work out differences on 3rd generation wireless spectrum, although military top brass continued to raise red flags on relocation, reimbursement, timing. Verizon Wireless CEO Denny Strigl used hearing to call on Congress to weigh in on settlement solution for C-block spectrum returned by U.S. Appeals Court, D.C., to NextWave. On 3G front, Rep. Pickering (R-Miss.) said he planned to introduce bill “as soon as possible,” quipping that all spectrum was “on the table” except for bands occupied by MMDS and Instructional TV Fixed Services licensees. Subcommittee Chmn. Upton (R-Mich.) said he foresaw markup in Oct. time frame, despite differences that appeared to be keeping cellular operators and Pentagon apart. While much of panel appeared to be interested in finding ways to use DoD-occupied spectrum at 1.7 GHz for mobile Internet applications, several members questioned impact on national security and continuing military operations. Rep. Harman (D- Cal.), addressing Pentagon “skepticism” about ability of military to move, said, “I would not agree that the right answer is ‘We just can’t.'” She said: “I would suggest that more attention needs to be paid to how to make that transition effective.” Nearly 3-hour hearing, first this year on 3G, also focused on Enhanced 911 progress and need for lifting spectrum cap.

Commerce Secy. Donald Evans told FCC Chmn. Powell that with “additional time” NTIA should work with Commission to develop “a new plan for the selection of 3G spectrum.” Evans wrote: “The aim will be to build upon the good work already done and to develop and execute the new plan as quickly as possible.” Evans said he was asking that the work be done in coordination with other Executive Branch agencies, including National Security Council, National Economic Council (NEC), Office of Management & Budget, Defense Dept. Evans said in letter that he was urging participants to consider ways to “achieve flexibility” on statutory auction dates if flexibility was needed to implement plan. Letter appeared to be response to Powell letter last month outlining Commission’s plans to delay spectrum allocation decision for 3G that had been due this month under timeline set in White House executive memorandum last fall (CD June 28 p4).